Sarah Halsted

Written by: Sarah Halsted

Sarah Halsted

Technical Associate Director

General Electric appeals to EU court to protect UK voucher scheme

Employees greatly appreciate recognition, with research indicating that 78 per cent of managers highly prioritise timely acknowledgment of their efforts by their employer. Globally, it is estimated that employers spend over £36 billion on employee reward and recognition programmes. 

One important aspect of these is the ‘instant reward’ scheme where an employee receives a gift or a voucher as immediate recognition of a job well done. Employers will therefore be interested to learn that a dispute between HMRC and technology giant General Electric (GE) has been referred to the Court of Justice of the European Union (CJEU) for a ruling on the VAT position of such rewards.

GE’s UK group operated a reward programme for its employee called ‘Above & Beyond’ under which any employee of GE could nominate any other employee for acts which they considered deserved special recognition. Those nominated received a voucher which could be exchanged for goods or services at well-known retailers.

GE recovered VAT on the purchase of these vouchers and has now appealed against a decision by HMRC that it should have accounted for output VAT on the value of the voucher when it was given to the employee. HMRC argues that VAT is due because the vouchers are supplied to staff for their personal consumption outside GE’s business. The fact that GE may have some business purpose in providing the vouchers to staff is, in HMRC’s view, irrelevant. The tribunal immediately referred this question to the CJEU for a ruling on how to interpret the underlying EU VAT law on this point.

In recent years, HMRC has tightened up its VAT treatment of benefits, and its current guidance does indeed specify that retail vouchers are subject to VAT when offered in exchange for a salary sacrifice. However, the guidance does not mention instant reward schemes like GE’s, the vouchers are given to the employee completely free of charge. The GE case indicates that HMRC is exploring a new policy which could make it more expensive to reward employees in this way.

Under the Withdrawal Agreement, the CJEU may give rulings on appeals referred by the UK courts and tribunals before the Brexit transition period ended on 31 December 2020 and this case is one of the last to cross that line before the cut-off date. A judgment from the CJEU can be expected in around 12-18 months’ time but, in the meantime, employers should estimate their potential VAT liability should HMRC win its case and watch out for further developments.

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